Measure 67: a closer look at the facts

In several venues, Pat McCormick of Oregonians Against Job-Killing Taxes makes statements that are not factual representations of the provisions of Measure 67. Measure 67 deals with increasing corporate minimum tax and income tax rates, and with increasing certain filing fees. McCormick says, "Measure 67 offers no protections for small businesses. Instead, it doubles small business filing fees -- even for sole proprietorships -- and creates a new annual entity fee of $150 for most small businesses." Let's take these statements apart and compare them to the text of the law.

First, Measure 67's minimum tax and income tax provisions apply only to corporations. A "C-corporation" is a legal entity that pays tax on its own net taxable income. An "S-corporation's" net taxable income is reported by, and the tax upon it paid by, its shareholders, generally on their individual income tax returns. Measure 67 says that C-corporations will pay the greater of the income tax on their net Oregon taxable income OR a minimum tax computed as a sliding-scale percentage of their gross Oregon sales. The minimum will increase from $10 to $150. (Just for comparison, it might be useful to know that California imposes an $800 minimum tax on corporations registered to do business in the state whether a C- or S-corporation and whether the corporation does any business in the state or not.) The current income tax on corporate taxable income is a flat 6.6%. Measure 67 adds a second tier so that income over a certain amount is taxed initially at 7.9%, then falls to 7.6%. Here's a table to show how that works over time:

For tax years beginning Tax Rate 6.6%Tax Rate 7.9% Tax Rate 7.6%1/1/2009 through 12/31/2010 1st $250,000 Taxable income of taxable income over $250,000

1/1/2011 through 12/31/2012 1st $250,000 Taxable income of taxable come over $250,000

1/1/2013 and thereafter 1st $10 million Taxable income over of taxable income $10 million

As someone who works with truly small businesses, I can assure you these increases will not affect small business, and, after 2012, will only affect really large businesses.

It's important to understand some terminology here. "Income tax" is applied to taxable income, which is gross sales or other revenue less deductible business expenses. It's possible to have very large gross income and yet show little or no taxable income if your expenses are very high. To capture more tax on corporations whose sales in Oregon are very high, Measure 67 introduces a new way of computing a minimum tax, which will apply if it yields a bigger tax than the traditional income tax. This will only apply to corporations whose sales in Oregon exceed $500,000. Here's another table with some illustrative scenarios:

So, yes, there are cases where corporations will pay more tax under the new law than they do under current law. In the fourth example above, the corporation with $8.6 million in Oregon sales will pay .0872% (that's .000872) of its gross Oregon sales as tax to Oregon. We have to decide if we think that's fair. Personally, I think with that kind of gross revenue, it's a drop in the corporation's bucket.

There is one new application to the minimum tax portion of Measure 67: Partnerships, for the first time, would be assessed a $150 fee when filing their Oregon partnership return. (The net income of partnerships is taxed to the partners.) I believe Mr. McCormick is referring to this very limited circumstance when he says, "…creates a new annual entity fee of $150 for most small businesses." In my experience, very few small businesses use the partnership form of doing business; most of them are sole proprietorships or LLCs.

Finally, about the fees -- Measure 67 does increase some filing fees. These are the fees that certain legal entities pay to become legal entities under state law. To create a corporation, for example, currently costs $50. That would be increased to $100. These are one-time filing fees, not annual assessments. These filing fees apply to the creation of regular corporations, professional corporations (PCs, like doctors and accountants), cooperatives, limited liability companies (LLCs), limited liability partnerships (LLPs), limited partnerships, and a pretty obscure class of "corporations for irrigation, drainage, water supply or flood control. " There is no fee for starting a sole proprietorship, and never has been. If any of these entities were initially created in another state (known as a "foreign" entity) the fee becomes $275 instead of $100. In my opinion, informed by the facts, the revenue-raising aspects of Measure 67 do not put a burden on small businesses. They are modest and fair and deserve a "yes" vote.

Carol VanHouten of Sheridan is a former tax partner in a public accounting firm in Salem.